‘Six months’ notice’ and The Art of the Squeeze

Brian Mulroney: Mr. Turner, with a document that is cancellable on six months’ notice? Be serious… Please, be serious.

John Turner: Well I have never been more serious in my life.

Brian Mulroney: Please, please.

That was the final exchange in the famous free-trade slugfest in the English-language leader debate in the great free trade election of 1988. Liberal Leader John Turner had just accused Prime Minister Brian Mulroney of selling out Canada with his Canada-U.S. free trade deal and, after set pieces in which each man professed his and his family’s love of Canada, this is how it ended. If the deal produced all the bad effects Turner feared, Mulroney argued, Canada could simply withdraw. All it took was six months’ notice. Turner’s comeback had been that “it’s far more important to us than to the United States.” A commercial agreement cancellable on six months’ notice, Mulroney chided, “Be serious.”

Turner won the debate, which propelled him to a 12-point lead in the polls. But the Tories chipped away both at his opposition to the U.S. trade deal and also at his Liberals evident lack of any platform beyond that (hence their election-campaign “red books” ever since) and Mulroney was returned with a comfortable but reduced majority. Canada-U.S. free trade became law and five years later came NAFTA, as Mexico joined in to form the North American Free trade area. Six months’ notice became the rule in NAFTA, as well.

Except for Mulroney’s use of it as a not-very-convincing debating point, no one took the six months’ escape clause seriously. In theory the FTA and then NAFTA might be easy to get out of legally but in practice once countries’ economies had adjusted to zero tariffs on the Canada-U.S. and U.S.-Mexico borders, leaving the agreement would be too damaging and disruptive. That would be especially true for Canada and Mexico, whose economies would change in big ways because of free trade, but also for the United States, where thousands of businesses would plan their affairs around the new trade patterns the deals would create. In the 30 years minus three weeks since the Mulroney-Turner exchange, only one politician in North America has mused publicly about exercising his country’s six months’ option. Unfortunately, that person is the current president of the United States.

Given that cancellation requires changing laws, which only Congress can do, it’s not clear President Trump could have carried through on his recent threats to do so. But testing what the president could and could not or would and would not do was a road neither Canada nor Mexico wanted to go down. And so we have a new deal, the USMCA, so called because President Trump likes the similarity to the initials of the United States Marine Corps. (I wonder whether the deal will continue to be known as “U-S-M-C-A,” which is an inconvenient five syllables, or will revert to something shorter: “us-muck-ah,” as in, from Mexico and Canada’s perspectives, this deal mucks us up.)

Three decades on now, Article 34.6 of the new deal still provides for withdrawal on six months’ notice, with the agreement continuing for parties that don’t withdraw. But the new Article 34.7 says in addition that the agreement expires after 16 years (why 16 and not 20 or 15?) unless each country agrees to extend it. There’s also a compulsory review after six years, at which point countries will indicate if they want to extend for another 16 years. If they don’t agree to, there will be a review every year, after each of which they have the opportunity to renew again for another 16 years—or not. If they do renew for another 16, there are further reviews every six years.

Donald Trump can only be president until January 2025—under the current U.S. Constitution, at least. Assuming USMCA doesn’t get through Congress until spring 2019 at the earliest, he personally won’t have a chance to decline to renew the deal at its six-year mark. The governments of Mexico and Canada have to be hoping that his successor(s) will take a more traditionally diplomatic and collegial approach to North American trade relations than Trump’s “art of the squeeze.” If brass-knuckle Trumpish negotiation does become the new American norm, even for its once closest and most valued allies, there’s the obvious possibility that in years seven to 15 of the new deal’s life an equally mercantilist and combative U.S. president will hold off on extending the agreement’s life, thus recreating the uncertainty—such as we have seen in the last two years—that will persuade many businesses that in North America the U.S. is the only sure place to invest.

In these first few days of reading it, many critics of the renewed deal have homed in on Article 32.10, “Non-Market Country FTA,” which requires a member country thinking of negotiating a free trade deal with a “non-market country” to consult with its partners and, with certain deadlines, share draft texts—on a confidential basis if desired. The non-market country everyone thinks is the target here is of course China. To put realistic names on the possibilities, if Canada or Mexico enters into such a free trade deal with China, the U.S. can withdraw from the USMCA and replace it with a bilateral deal that it and Canada or it and Mexico, as the case may be, agree on. Apart from geo-strategic considerations, the Americans presumably worry that a China deal could be used as a back door to get Chinese goods into a U.S. market that, if the administration continues its hard line on China, may increasingly be closed to the Chinese.

This China clause has been portrayed as a humiliating imposition on Canadian sovereignty. It does have a Trumpish (i.e., Hobbesian “nasty and brutish”) flavour to it. But if an irate U.S.’s alternative is to completely withdraw from USMCA plain on six months’ notice, which it is, the possibility that it might decide instead to insist on negotiating a modified bilateral on six months’ notice actually seems a step toward reasonableness. A small step for man, admittedly, but a great leap for Trump.